NEW YORK (AP) -- Medical device and technology makers will likely continue prospering as aging populations in developed countries drive demand for more innovative products and new, emerging markets grow.
In a note to investors Monday, Leerink Swann & Co. analyst Rick Wise said those two factors will continue making companies including Medtronic and St. Jude Medical Inc. good investments. He expects large-cap stocks in the industry to remain stable, as other health care sectors and the broader market decline.
The U.S. Centers for Disease Control and Prevention expects the number of Americans over 65 to reach 70 million by 2030, doubling from the current estimate. Analysts have been pointing to this and similar trends in other developed countries as an ongoing boon for med-tech companies. Meanwhile, relatively new emerging markets such as China and India represent a lucrative opportunity.
Large cap medical technology stocks have fallen 1 percent for the year, through mid-June, Wise said, while the broader S&P 500 index shed 8.5 percent. Indexes tracking biotechnology and pharmaceutical companies lost 4 percent and 15 percent, respectively, during that same period.
"An uneven world economy has led investors to large-cap medtech's relative stability," he said. "Over the next few years, large-cap medtech's likely top-line growth of 8 percent to 10 percent, positive operating leverage and faster earnings per share growth should sustain broad investor interest."
Minneapolis-based Medtronic and St. Paul, Minn.-based St. Jude are his top picks for heart device companies. Sales of both implantable heart pacing products and stents seem poised for recovery after years of quality and performance issues, he said. Stents are used to open and unclog blocked arteries, and drug-coatings on the devices prevent the growth of scar tissue.
Medtronic's Endeavor drug-coated stent and North Chicago, Ill.-based Abbott Laboratories' yet-to-be approved Xience stent are among several new products that could lead that market's recovery, he added.
Management strategy is the key to success for more diversified companies, he said, with Abbott, Covidien Ltd., and Deerfield, Ill.-based Baxter International Inc. among his top choices.
Meanwhile, aging populations in developed markets will continue driving profit for orthopedic device makers, including Kalamazoo, Mich.-based Stryker Corp., which makes a variety of spinal, knee, and joint implants. Warsaw, Ind.-based Zimmer Holdings Inc. could also see a longer-term benefit from a baby boomer market looking to sustain active lifestyles later in life, he added.